Fundstrat Global Advisors Managing Partner and Head of Research Tom Lee joins Yahoo Finance Live to discuss what tailwinds investors can expect heading into 2021.

Video Transcript

MYLES UDLAND: Tom, we talked in the first segment about the stock market. And I think we know where we got to go next. We got to talk about what's happening in crypto. Bitcoin continues its rally on a market cap basis. We have seen Bitcoin at a record high on a price-per-coin basis.

We're within spitting distance of the record. What have you seen in this space? And I guess the natural follow on is, how much institutional interest do you guys continue to get in your work, and I think a lot of people view that as a proxy for sort of where Bitcoin is headed?

TOM LEE: Yeah, it's an interesting year because number one, we know that Bitcoin as a digital asset or internet money, it's really thrives off network value. So the more people who adopt it, the more parabolically the price rises. We've seen a pretty substantial increase in engagement this year.

And I've been pretty surprised because it is institutional. We always thought US would be sort of the most important market to watch for adoption, and it's really taking off here. Fortunately, we are one of the few firms that sort of sits between institutions and digital assets, so we've seen a lot of interest and a lot of engagement.

The halvening happened this year, which, of course, historically, is good for price because you're reducing supply. But history also says that the year that follows the halvening is much more important. So I think if Bitcoin was the best-performing asset last year, in 2019, it's killing it this year.

It's just crushing all other hedges and asset classes this year, 2020. But in 2021, I think Bitcoin could be the year of the fireworks. So if people are interested, they really should realize that the best is probably yet to come.

JARED BLIKRE: Tom, want to get your take on some of the other crypto assets, Ethereum, Ethereum 2.0 coming down the pike here. Are you interested in this or any other tokens or cryptocurrencies, for that matter?

TOM LEE: I mean, yes, we are. In fact, you know, our senior digital lead David Grider does a lot of work on specific projects, and he's-- you know, he's actually probably good enough to do code audits. And I think that, you know, people have to keep mind Bitcoin is really the cornerstone of digital assets and digital money and sort of the importance of why people need to have exposure, but there's going to be so many other pathways to realize asset appreciation.

So I think Ethereum has a proven community. There's a lot of other projects out there. I don't want to sort of pick favorites here because David has done a lot of work. And if you're interested, you should check out his work. But yes, we're-- in general, people should look beyond Bitcoin as well.

BRIAN SOZZI: Tom, I do want to quickly, before we let you go, back on to equity markets. That $4.5 trillion you mentioned that is, in fact, on the sidelines, where do you think that goes in terms of sectors? And what's a trigger point for a good bit of that money coming back into the market within the next few months?

TOM LEE: Well, I think it's going to be really interesting, because let's say people are really interested in thematic and ETFs, and machines and algorithmic systems and systematic trading also will enter via ETFs. So number one, as the money does move off the sidelines, plus as the VIX falls, we know that value at risk or institutional leverage will rise. I think the indexes will rise broadly, so that means growth stocks will keep up with the S&P.

But when people look for alpha or opportunities to beat the market, it's really going to come through small cap and cyclical stocks, which we call epicenter. They've already revealed their outperformance since the S&P's, like, for two weeks done nothing, but these have been on fire. That's really big signal as we go into the Santa Claus rally, because people who want to outperform that 7% aren't going to suddenly dump the cyclicals. They're going to buy the tiny sliver of the market, and I think small caps, similarly, could really be quite dramatic in their upside move.

MYLES UDLAND: You know, Tom, we've been talking about kind of near term or more intermediate term type moves to the market. But I remember, I think it might have been 2015, and you correct me if it was more recent than that, but you know, you had a note out talking about maybe-- basically, just like millennials maturing and the generational cycle that was likely ahead for the market, a multi-decade kind of cycle that had you excited. Has your view changed on that at all based on what we've seen here? Or is these kinds of hiccups expected along those very long positive inflection points for markets?

TOM LEE: Yeah, Myles, that's-- that's something that we don't write often enough about, but I think demographics have explained markets better than anything. So we like to really show our clients that for the last 100 years, you could have called every market top by just following generations of people aged 30 to 50. And the millennials are such a huge cohort, and they're about to inherit $68 trillion over the next 20 years, so they'll become the richest generation ever in the history of the US.

That-- that is historically tied to incredibly powerful bull markets. And yeah, so we're probably just in the first inning of a bull market that could last till 2038. I know this sounds crazy. But again, if history's a guide, the S&P will probably peak around 15,000. So I think for people who think nothing-- there's no upside left, they're not really students of history.

And I know I'm not going to try to sound crazy. I'm just going to encourage you to look at some of our work. History has not only been a good guide, it's almost been textbook. Even 2020 is actually acting pretty textbook. So again, don't write me off as a crazy loon. I would just encourage you to look at some of the work we've done on them.